## IMF Executive Board Completes the Second Review under the Extended Credit Facility Arrangement for the Republic of Mozambique

_IMF News, July 6, 2023_

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**Canonical URL:** [IMF Executive Board Completes the Second Review under the Extended Credit Facility Arrangement for the Republic of Mozambique](https://www.imf.org/en/news/articles/2023/07/06/pr23258-mozambique-imf-exec-board-completes-2nd-rev-ecf-arr)

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## Bibliographic details
- Published: July 6, 2023

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### Review outcome and disbursement
- The Executive Board completed the Second Review under the three-year ECF arrangement for Mozambique.
- Immediate disbursement: SDR 45.44 million (about US$ 60.6 million), usable for budget support.
- Total disbursements under the ECF arrangement after this review: SDR 159.04 million (about US$ 212.09 million).
- Waivers of nonobservance approved for two performance criteria:
  - Missed end-December 2022 performance criterion on domestic primary budget balance due to overruns in the implementation of the wage bill reform and revenue shortfalls.
  - Missed continuous performance criterion on non-accumulation of public and publicly-guaranteed external arrears due to delays in debt service repayment by a SOE.
- Waivers were approved based on remedial actions taken by the authorities.
- The monetary policy consultation clause (MPCC) band was breached at the lower bound as inflation decelerated faster than expected; the monetary policy consultation with the Executive Board was completed.
- The Executive Board completed the financing assurances review and approved the authorities’ request for modification of conditionality.

### Program objectives, performance, and conditionality
- Objective of the three-year ECF arrangement: support Mozambique’s economic recovery, reduce public debt and financing vulnerabilities, and foster higher and more inclusive growth through structural reforms.
- Program performance summary:
  - Broadly favorable overall, with notable slippages in the fiscal area.
  - Important program commitments in fiscal governance and anti-corruption were completed.
- Specific fiscal developments:
  - Fiscal performance in 2022 was worse than expected, mainly due to slippage in the wage bill reform and revenue underperformance.
- Monetary policy stance:
  - Characterized as tight and appropriate to contain inflation pressures.

### Economic outlook and risks
- Growth:
  - Projected to increase in 2023, driven by increasing liquified natural gas (LNG) production, agriculture, and services activities.
- Inflation:
  - Returned to single digits, attributed to proactive monetary policy and favorable import prices for fuel and food.
  - Inflation decelerated faster than expected (MPCC band breach at the lower bound).
- External sector:
  - LNG investments are driving the current account deficit.
  - Expected increase in LNG exports and moderation of food and energy imports is projected to improve the current account balance going forward.
- Risks:
  - Primary downside risks: delays to LNG projects and deepening geo-economic fragmentation.
  - Additional downside risks: inflation pressures from higher wages, natural disasters, and food insecurity.
  - Upside risk: ramping up of LNG projects.

### Policy recommendations and authorities’ actions (as highlighted by Mr. Bo Li, Deputy Managing Director and Acting Chair)
- Fiscal policy:
  - Authorities are undertaking corrective measures to ensure fiscal discipline in 2023; continued fiscal consolidation efforts warranted over the medium term.
  - Revenue side: broadening the VAT base to help mobilize revenues efficiently.
  - Expenditure side: reducing the wage bill in line with regional peers to create fiscal space for high-priority spending.
  - Continue strengthening the social safety net to address food insecurity and elevated poverty.
- Monetary policy and macroeconomic management:
  - Monetary policy stance appropriate to contain inflationary pressures and rebuild reserves; continued caution warranted.
  - Implement an appropriate and carefully calibrated policy mix between fiscal and monetary policy.
  - Improve transmission of the policy rate by implementing an inflation targeting regime over the medium term to allow greater exchange rate flexibility to cope with external shocks.
- Structural and governance reforms:
  - Continue progress on governance, anti-corruption, and fiscal structural agenda.
  - Submit to Parliament the Sovereign Wealth Fund law to develop a transparent, accountable, and efficient framework for managing LNG receipts.
  - Key reforms include improvements in revenue administration, public financial and debt management, and SOE transparency.
  - Strengthen the AML/CFT framework and monitor vulnerabilities in the financial sector, including cybersecurity risks.
  - Implement policies to enhance climate resilience given strong vulnerabilities to climate change.
- Program implementation:
  - Continued program ownership by the authorities, complemented with capacity development efforts and donor support, remains essential for Mozambique to achieve its development objectives.

### Key statistics (Table 1: Mozambique: Selected Economic Indicators, 2019–23)
- National Income and Prices
  - Nominal GDP (MT billion): 2019: 963; 2020: 983; 2021: 1,053; 2022: 1,223; 2023: 1,414
  - Real GDP growth (percentage change): 2019: 2.3; 2020: -1.2; 2021: 2.4; 2022: 4.2; 2023: 7.0
  - Consumer price index (percentage change, end of period): 2019: 3.5; 2020: 6.7; 2021: 10.3; 2022: [not provided]
- Government Operations (percent of GDP)
  - Total revenue: 2019: 29.0; 2020: 23.9; 2021: 25.3; 2022: 23.4; 2023: 23.5
  - Total expenditure and net lending: 2019: 28.2; 2020: 32.9; 2021: 30.9; 2022: 32.3; 2023: 30.2
  - Overall balance, after grants: 2019: 0.3; 2020: -5.7; 2021: -4.7; 2022: -4.9; 2023: -2.8
  - Primary Balance after grants: 2019: -2.6; 2020: -2.0; 2021: 0.4; 2022: [not provided]
  - Public sector debt: 2019: 99.0; 2020: 120.0; 2021: 104.9; 2022: 95.5; 2023: 89.7
    - of which: external: 2019: 79.4; 2020: 97.8; 2021: 81.2; 2022: 71.1; 2023: 65.6
- Money and Credit
  - Reserve money (percentage change): 2019: 19.1; 2020: 9.0; 2021: -14.3; 2022: 0.6; 2023: 85.9
  - M3 (Broad Money) (percentage change): 2019: 13.4; 2020: 23.3; 2021: 1.9; 2022: 8.7; 2023: 5.2
  - Credit to the economy (percentage change): 2019: 13.1; 2020: 4.0; 2021: 6.0; 2022: [not provided]
  - Credit to the economy (percent of GDP): 2019: 23.8; 2020: 26.4; 2021: 25.9; 2022: 23.2; 2023: 21.2
- External Sector (percentage change)
  - Merchandise exports: 2019: -10.2; 2020: -23.1; 2021: 55.6; 2022: 47.2; 2023: -1.9
  - Merchandise exports, excluding megaprojects: 2019: 8.3; 2020: -22.0; 2021: 43.0; 2022: 31.9; 2023: 8.8
  - Merchandise imports: 2019: 9.5; 2020: -12.9; 2021: 33.2; 2022: 70.2; 2023: -29.5
  - Merchandise imports, excluding megaprojects: 2019: 9.3; 2020: -4.5; 2021: 37.8; 2022: 12.1; 2023: 7.9
  - External current account, after grants (percent of GDP): 2019: -19.1; 2020: -27.6; 2021: -22.4; 2022: -32.9; 2023: -15.5
  - Net international reserves (millions of U.S. dollars, end of period): 2019: 3,605; 2020: 3,493; 2021: 2,927; 2022: 2,333; 2023: …
  - Gross international reserves (millions of U.S. dollars, end of period): 2019: 3,884; 2020: 4,070; 2021: 3,470; 2022: 2,888

*IMF Executive Board Completes the Second Review under the Extended Credit Facility Arrangement for the Republic of Mozambique, July 6, 2023*

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## References

- [https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg)
- [The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)
- [Republic of Mozambique and the IMF](http://www.imf.org/external/country/MOZ/index.htm)
- [Special Drawing Rights (SDRs) -- A Factsheet](https://www.imf.org/en/about/factsheets/sheets/2023/special-drawing-rights-sdr)
- [Press Releases](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [Press
Release](https://www.imf.org/en/News/Articles/2022/05/09/pr22145-mozambique-article-iv-consultation-and-ecf)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2023/07/06/pr23258-mozambique-imf-exec-board-completes-2nd-rev-ecf-arr_